The American Oil and Gas Reporter – January 2011

ALBUQUERQUE, N.M.–Shale plays are revolutionizing the domestic industry and giving operators an entirely new horizon of opportunities in large, repeatable plays. Oil and gas companies are testing and developing an abundance of gas, wet gas and oil shale formations, but controlling costs in these plays can be an Achilles’ heel if land data are inaccurate or incomplete.

It is becoming a common, but publicly unspoken, acknowledgement that 10-30 percent of the data on all shale play acreage under leasehold are rife with errors, including miscalculations in gross acreage, net acreage, and broker and land acquisition costs. Add to this the fact that acreage costs have exploded by a factor of 20 since 2006, and any bottom line can really take a hit if land data are not precise.

By leveraging technology in bold new ways, leasing and operating companies are vastly cutting margins of error and significantly increasing the ability to control their base costs. New technology is bringing a convergence of reliable field, map and financial data to give land personnel and company management unprecedented confidence. Such enhanced accuracy also helps avoid overspending at a time when federal and state onshore lease sales are experiencing record bidding and spending levels for acreage ranging from the Niobrara play in Wyoming, to the Wolfberry and Bone Spring plays in West Texas, to the Collinwood Shale in Michigan. Just ask anyone attending NAPE how competitive leasing in shale plays has become!

The convergence of land information for multiple departments is driving new land management software technology that offers a real-time, tract-based solution for exploration, drilling and production stakeholders. It was created by land managers with decades of experience to address the inefficiency and disparity of data incurred when numerous partners are working in a field.

Westward Energy is an independent exploration and production company based in Albuquerque, N.M., with lease acquisition activity in six states. Westward deployed the new software for real-time land management and is finding the technology to be indispensable in bringing order and reliability to the enterprise. When the company took on its first land project in November 2009, management quickly became frustrated by the lack of accuracy involved with inputting and updating information among all land personnel in the field. Having formerly managed a $500 million trust with 600 accounts, management was accustomed to precise and accurate accounting with a five-tier accounting system.

Westward Energy’s very first land acquisition project got complicated quickly. It involved multiple partners, which meant different people were working in the field collecting information, obtaining leases, signing options and signing leases. The company typically would have to wait at least a week to get reporting. Often, so many touch points meant that the left hand did not know what the right hand was doing. What leases did the company own? What were the terms? When were the leases reported, or had they even been recorded? Management simply did not know the answers to these rather fundamental, yet critical questions.

There was no centralization of information. Westward Energy tried a simple Excel™ spreadsheet that involved entering data and updating it, but there were three landmen in the field from two companies, and everyone basically was keeping score with a different score sheet.

Centralized Repository
After that potentially disastrous scenario, it was imperative to find an understandable and reliable solution. Management began searching for alternatives and came upon what first appeared to be a supersized spreadsheet, but turned out to be the answer that Westward Energy’s land operations needed. The solution not only served as a centralized repository for data on an area of mutual interest for Westward, but it also proved to be an intuitive tool.

Westward’s management team began to see immediate benefits. The technology’s proficiency in reporting capabilities was quickly evident; the reports the company had been making were more numerous and extensive than first anticipated. The company has 14 landmen located all over the country on different projects, and all are distantly remote, working acreage in Montana, North Dakota, Nebraska, Texas and other states.

What most impressed management was the system’s ability to centralize the data from different projects and land personnel. Westward’s landmen can simply scan in a lease and “attach” it or include it in the project report or tract report. This makes it easy for the head office to call up the lease. If anyone has any questions, there are standardized leases to refer to and all the corresponding documents are easily accessible.

Information for each contract (lease) can be recorded along with acreage, depth and recording data. Term, rentals, contract and surface restrictions as well as extension and prescription options also can be captured.

Perhaps the biggest effect that the new technology has had on Westward is the uniformity it creates in how the entire company organizes and accesses information. Within four months, all Westward projects were centralized into a uniform view for reporting and maps. Every landman has a different background and style of doing things, such as writing lease variables. But now they can each enter such common data as a tract number when queried by the new system. And they can do this in real time.

No longer is it necessary to translate information. With the new technology, uniformity exists that gives the data credibility. Data are organized and standardized so that they can be accessible, and therefore, manageable. The screen shot in Figure 2 shows a list of tracts along with basic information that provides access to all details associated with each lease Tracts within a project can be viewed easily and quickly from any part of the program.

In the past, a spreadsheet had to be created for each of the company’s 14 landmen. Data were entered and sent to management daily or weekly on spreadsheets located on different parts of the computer under different partnerships. Now, Westward Energy is able to manage roughly double what it handled before. All that efficiency–cost savings, time savings, increased profitability, etc.–has allowed the company to get in the right place at the right time, and to confidently manage its land program.

Enabling Growth
Since deploying the technology, Westward has grown its land holdings fourfold and the company is managing roughly double the activity of what it would be doing without the tool. Westward now has 200,000 acres under lease in the span of less than one year and has six projects under way, all which would not have been possible with its old system.

Management’s job is to locate and acquire leases in hopes of selling them to buyers that are known to be interested. If leases are acquired with the utmost accuracy and reliability, it means the company’s experienced landmen may be able to secure acreage that others have not been able to buy. When talking about hundreds of thousands of acres being leased or sold at any given time and millions of dollars at stake, there is no room for guesswork.

As far as the return on investment, the cost of the system is a nonissue because of its convergent features. The system paid for itself within the first four months that Westward used it. The company has been able to double its capacity since deploying the technology, and that is 100 percent growth that management can feel comfortable about. It is not about having a lot of data in a depository, but rather a single, real-time, dynamic repository with integrated GIS capabilities that update maps with each new entry (Figure 3).

The technology is purpose-built for landmen, both in the field and head office, to use in identifying, acquiring, mapping and reporting their company’s positions, as well as that of their competitors. Integrated within the technology are payment approval, remittance functionality and a complete audit trail. The information it provides is always fresh and relevant because the development is being pushed up from the field as well as down from the head office. Using these mapping and reporting tools, land personnel and executives can quickly gain the knowledge necessary to control and manage most situations.

The convergence of data offered by the system also has streamlined Westward’s workflow. The company now can manage multiple projects without personnel overlap, duplication or gaps. Even if there are multiple landmen on the same project, there is no overlap. By putting everything in one database for the project, all the information can be converted into one central point with cycle time to deliver a lease package reduced by three days or more. And in land acquisition, where the earliest mover often gets the lease, timing truly is everything. A centralized project map can be created as often as management needs, with the most current leases included in real time.

Faster, Smarter Decisions
The bottom line is that the system brings together all the variables that are needed to make faster and smarter lease decisions. Westward Energy can look at the whole of its projects or even the smallest lease detail and make evaluations regarding how much progress is being made and what the cost is. It is simply better time management. Landmen normally get paid a daily rate, so it can get expensive in terms of personnel costs if a landman is waiting in a hotel somewhere, not being productive because management is waiting on other landmen to fill in other sections of data they are working on. Using next-generation lease management technology, it is possible to know a landman has finished his section and that he can be sent to work on another area, or perhaps even another region.

Westward now is able to digest large amounts of tract and contract data visually, using the system’s database and integrated mapping system. The company also can add layers of its own historical data or purchase and integrate third-party mapping data that are important to a given project. Management can focus on key areas and capitalize on these opportunities. With consistent and time-efficient data coming in from the field, Westward personnel know where they are at any moment. With numerous landmen in disparate locations, there is a cohesion that previously was missing.

All of Westward Energy’s 14 landmen now report in the same fashion, with no conversion or reformatting necessary. Their dashboards are set up to always reveal how much acreage they have, the cost of that acreage, and any other associated project costs or documents. The uniform quality of the data and maps obtained from the field legitimizes, for the first time, the land’s contribution in a convergent manner that improves the return on investment of the land acquisition process.

In the final analysis, the technology allows Westward Energy to manage opportunity, rather than merely react to it. The land phase of the energy industry workflow finally is realizing landmen can gain an edge on the competition by leveraging technology. It is an area where innovators can rise to the top.

John T. Sandager
John T. Sandager is the managing partner of Westward Energy LLC in Albuquerque, N.M. He is responsible for all legal, financial and administrative oversight and operations at the company. Previously, Sandager was the founder and chief executive officer of Santa Fe Trust, which he grew to $500 million in trust assets in six years, making it the largest independent trust company in New Mexico. He then served as executive pastor at Hoffmantown Church. A licensed attorney, Sandager has practiced law for 30 years in the areas of real estate, estate planning and small business taxation and corporations. He holds an undergraduate degree from the University of North Dakota and a juris doctorate from the University of New Mexico School of Law.

Richard A. Hines
Richard A. Hines is a partner of iLandMan, the provider of the lease acquisition and management software technology deployed in Westward Energy’s operations. Based in Lafayette, La., he has 26 years of experience as a practicing landman. Hines is partner and vice president of American Data Corporation, where he oversees all operations. He also owns interests in Heritage Resources LLC and Shelf Minerals LLC. Hines serves on the American Association of Professional Landmen’s Certification and Website/IT committees, and is a past third vice president on the AAPL board. He holds a degree in petroleum land management from the University of Louisiana at Lafayette.

If you have any questions about iLandMan, or want to set up a demonstration, please give us a call at 1-855-445-9629 or fill out our contact form.

The Lay of the Land

Real-time Ownership

Gas prices oscillating around $4-$4.50/ mcf, oil prices surging above the $80/bbl mark, land rigs increasing by over 30%, offshore rigs have decreased by over 35% in North America within a year’s time frame. With this trend companies see a strategic movement of their investments toward oil and condensate production. Everyone is once again looking at how to cut costs without compromising production. Many are looking at new areas such as how we can make our land department more efficient? Regardless of the size of an exploration company or their field brokers, working more efficiently is a common theme this year for those who continue with active lease acquisition programs, or have needs to complete
their project lease holdings to make them more marketable.

Take a page from broker, Magnum Land Services, during the last couple years. Through June of 2007 to May of 2009 they managed up to 140,000 acres under lease and according to Accounting Manager, Bryce Hundley, “ There is no way we could have managed the lease process without iLandMan.” In that time period, Magnum grew their lease holdings 10 times. Hundley continued, “What’s amazing, is we considered bringing on some additional people, but once we understood how to leverage iLandMan’s features we didn’t need to do that. At a minimum, the cost of using their product saved us over 80% compared to what would have been required to add headcount.”

Hundley added, “Our staff under Chick Belanger does a great job in presenting our leases, but I have to mention one thing because we completed two good size divestitures in September, 2009. These are not second hand comments; these are buyers speaking directly to me. Both buyers explained they had looked at numerous other opportunities and our reports and presentations were far and away the cleanest they had seen.” It’s hard to quantify, but cost savings and a transparent representation has value in any market environment.

Return on iLandMan (ROI)

Going from a five tier accounting system to attempting to manage 200,000 acres of lease holdings in six states with multiple partners with subordinate tools was not John Sandager’s style. Sandager is a partner in Westward Energy with longtime oil and gas land expert Knute Lee, and son, Cody Lee. Mr. Sandager had previously managed a $500 million trust with 600 clients so he was accustomed to detail and reliability. After a few months of trying to manage their projects and holdings with spreadsheets and Google Docs he said to himself, enough! When he discovered iLandMan at Winter NAPE in 2010 he was mesmerized.

See the January 2011 issue of American Oil & Gas Reporter for the full story.

Hines Sight

The Past and how a Better Way Emerged: By Richard Hines, Vice President/Partner

Twenty five years ago, land departments had 50 people in satellite offices, complete with phones, typewriters, and the first computers. Maps were colored by hand. They used Wordstar, Lotus 123, and because oil companies used many different brokers in different areas, it was difficult to compile all the data because they used different types of programs and forms. There was no real process; all you had was milestones and quality checks.

Net acreage reports could be off by as much as 10%—and up to 30% in large leasing or complex projects! Operators were unable to manage brokers in the field, as they worked independently without much communication with their clients. To my partner and I, the situation was untenable, so we decided to build a program to help with the identifiable problems and streamline this whole process. We formally began offering the solution to clients in 2005. We wanted a solution so intuitive anyone could use it so we requested input from our peers, the people who would use the solution and wanted more features than
their spreadsheets and self-created programs could deliver.

The Internet and cell phones have revolutionized how landmen work. Now, no satellite offices are needed, eliminating a significant expense. The information is only entered once from the source in the field, and the database links directly to mapping. So, reports and mapping are as current as the days work, and clients can add as many of their own layers to the map as they choose. The solution operates using a SQL database backbone, and about a year ago we moved to an ASP.net platform so anyone with an Internet browser can use this open and “platform neutral”, multi-tenant application.

Because it is web-based, updates are made frequently to the hosted application. No software version upgrade fees are required from our customers. Each user obtains a personal, secure storage area. Companies can add users to their license quickly and easily and provide project-based permissions for accessing data remotely and securely. Therefore the users can see and do what each license holder requires of them.

All of the landmen’s work, contracts, payments, communications, and reports are generated for them from the data they enter. Clients also have easy access to all this digital information as it resides in a central repository. Finance doesn’t have to make a request from land for net acreage updates, engineers no longer have to go to the GIS staff to get a map, and the land department can pick-up right where they left off on a project even if it has been months since they were working an area. There is a better way to do land work, check out our way because we’re ready when you’re ready.

Power Brokers

R&O Adopted Early – Reaps Advantages: R&O Energy, Shreveport, LA

R&O Energy was among the first to use iLandMan in 2004, and it has been a fortuitous decision ever since. Originally, they began using the solution to bring coordination to their projects and avoid stagnant and outdated database sets. What happened was they gained an entirely more efficient way to manage and run their business. John O’Niell, partner, explains “It is very easy to duplicate efforts in our field of work which can be quite expensive. We were looking for a way to avoid this and save time in the future when returning to a project or region so the data would be in tact where we left off. Immediately useful.” R&O wanted better data coordination, storage and ease of access for field brokers. A billing function for payments, and GIS mapping capabilities that linked to a database. “We found all of this with iLandMan, and real-time reporting to boot.” He continues, “When managing large acquisitions and evaluating new prospects, this is the fastest way to bring a broad variety of data in from the field and be able to report its entry.”

The uniformity this solution has brought to R&O has completely streamlined the way they work. All the way down to how we train people. As O’Niell describes, “Especially for new hires, it is easy to train them to learn the processes and command structure. After running through it a few times, they easily get the hang of it.” It has made us a highly competitive firm.